Beyond bridging and into development

The bridging market is a rather different beast today than it was even just a couple of years ago. The market has enjoyed some great successes, with a vastly improved reputation, and as a result more and more firms have decided to move into short-term property finance.

While the market has grown, there is a limit to just how big it can get. Subsequently, firms looking for scale have increasingly looked to diversify their products beyond the simple, old-fashioned bridging loan. That has seen them look to additional markets, covering things like bridge-to-let, commercial finance and development finance among others.

When you diversify, you look to complementary areas where you can adapt and repurpose your existing processes and skillsets, adjacent markets where you can compete. But that can only be the starting block.

If you are to diversify properly, you have to devote a lot of time and resource to getting the right people in, people with substantive experience of that market. Having similar fundamentals is fine, but there will be substantial differences – and plenty of them – between the markets too.

Failing to account for those differences can prove disastrous for all involved at worst, or at best could result in a lot of effort spent for pitiful results.

A good example of our best efforts to get this right at LendInvest is development finance.

We have worked with developers for years, helping them get their projects off the ground or to keep moving when the big high street banks could not or would not provide funding.

But in December 2015 we decided to move formally into the development finance arena and really commit to building a substantial presence in that market.

That means recruiting a specialist team, well versed in the intricacies of the development market. In our case, we recruited Steve Larkin as director of development finance, someone with an extensive development career.

You have to have that experience at the top if you want to diversify properly, rather than make a half-hearted fist of it.

Development finance is an area that plenty of bridging lenders have eyed up, as there is a clear crossover there. But it’s by far the most difficult alternative market to do well.

With development finance, it is just so easy to make mistakes. Establishing whether a prospective project is a good prospect or not is a far more involved and complex assessment than with a traditional bridging case. And there are so many things that can go wrong with a development which can scupper the whole project, risks that simply don’t exist in straightforward bridging deals.

So far, we have got it right. In the four months since officially launching a development finance product, the team has performed brilliantly, writing 14 loans ranging in size from £400,000 to £10m.

The next step is scalability – getting that money back, and moving to double the volume and value of deals on our books in the coming months.

Diversifying your services can be incredibly rewarding. But it’s not an easy thing to get right – you have to build around the right people, with the right experience.